Gas Prices: Feeling the Pinch

Changing practices, attitudes accompany new reality at the pump.

August 1, 2006

When the Hummer h2 first hit the market in 2003, Cheryl Gray snapped one up and had her name printed on the side. The car served as a mobile billboard while she drove around her southern Wisconsin market.

No more. Gray’s Hummer isn’t parked permanently in her garage, but when she’s showing more than a few homes—or driving to outlying areas—she drives her other car, a Cadillac. It’s not as eye-catching, but with gas now topping $3 a gallon in her area, the Caddy’s far more cost-efficient than the Hummer, which gets only 10 miles to the gallon. “When you’re spending $300 a month for gas, that’s almost as much as your car payment,” says Gray, broker-associate of RE/MAX Preferred in Janesville.

Around the country, real estate practitioners are scrambling to adjust their business practices to a new reality. Nationally, gas prices averaged just under $3 in mid-June, up more than 70 cents from the same period in 2005 and more than double the 2003 average. Some projections have the increases continuing into the foreseeable future.

Geopolitical issues in big oil-producing areas such as Iraq, Nigeria, and Venezuela are among the drivers in the price upswing. Hurricane Katrina also had an effect, hobbling U.S. refining and transport capacity in ways that have yet to be fully resolved.

What’s more, China and India continue to skew the supply and demand equation as these two population giants grow their economies at rates far outpacing those of developed countries.

For the car-reliant real estate business, this confluence of events is having an impact that extends far beyond the price practitioners pay at the pump. It’s also influencing where buyers look for houses and how much they can pay.

Pain at the pump

The high price of gas is an equal opportunity problem, but buyer specialists are particularly vulnerable because of the amount of time they spend driving to showings. To make matter worse, buyer specialists tend to be less-experienced associates who don’t have the financial wherewithal to weather the higher costs.

“Gas prices are practically putting me out of business,” says Penny Lawrence, a rookie and part-time sales associate with Century 21 Distinctive Properties in Dixon, Calif.

Since joining the industry, Lawrence has developed her customer base in part by working other associates’ open houses. When she combines running around to open houses with her prospecting efforts and buyer tours, she’s feeling more than a pinch. In fact, she’s rethinking her entire business-building approach, she says, especially since her only car is an SUV that gets poor gas mileage. “As a newer salesperson, I haven’t reached the point of owning two cars,” Lawrence says, “the seller’s agent–type sporty model and the buyer’s agent–type family car. The SUV is sucking me dry.”

Other associates agree, saying they’re reducing trips to the gas pump by weeding out unserious buyers.

“I only preview homes for specific clients,” says Joan Reynolds, an associate with Luks Realty in New Fairfield, Conn. “If potential buyers don’t have a preapproval in hand and their home on the market, I refer them.”

Tanya Redic, a sales associate with Harold Carter, REALTORS®, in Tyler, Texas, takes a similarly cautious approach when working with buyers interested in outlying areas. After making sure they have a preapproval, she has buyers take the first trip to the house by themselves to see if it’s what they want, at least from the street. “If they like the outside or the neighborhood, we set an appointment,” she says.

Saying no to the exurbs?

Changing homebuyer attitudes are also impacting practitioners’ businesses. For some buyers, higher prices at the pump offset the affordability advantage of buying in an outlying area. In other words, practitioners say, the rule of thumb about buyers “driving until they qualify” might no longer make economic sense.

“Gas prices are starting to affect where people look,” says Gray, especially those on a strict budget and those with a family. “I just talked to a colleague whose son is thinking of moving closer to work.”

In fact, some 70 percent of home buyers say gas prices have become an important consideration in deciding where to live, a survey by Internet listing company HomePages.com finds. That number is likely to grow. Last year, only 9 percent of buyers in the HomePages.com survey said a short commute to work is an important factor in deciding where to buy; that number jumped to 40 percent in this year’s survey.

“Clients are now telling me they have two primary requirements in their home search,” says Eileen Landau, CRS®, a sales associate with Realty Executives, REALTORS®, Naperville, Ill. “They want a neighborhood that has good schools and they want to be close to their jobs.”

Home buyers may also look for more economy in their home selection, since they now have to devote a greater share of their household budget to transportation. “As gas eats up more of their income, they have less money for a house payment,” says Landau.

Small tax break likely

Is there relief in sight? If so, it won’t be in the form of federal legislation.

Congress wields little influence over the market forces that drive energy prices, say NATIONAL ASSOCIATION OF REALTORS® policy analysts. A plan floated in the U.S. Senate in May was quickly withdrawn after one of its principal provisions, to give households $100 rebate checks, was widely derided as short-sighted. Other provisions, including a proposal to curtail the amount of gas diverted to the U.S. strategic petroleum reserve to increase the supply and thereby ease price increases, have been put on the back burner. Nor did any workable solutions stem from high-profile hearings in Congress in the spring, in which oil company executives provided testimony about whether their companies were profiting excessively from price hikes.

One place where practitioners may find some relief, though, is in their taxes. The IRS periodically adjusts how much taxpayers can deduct for business travel on a per-mile basis.

In mid-June the IRS indicated in a meeting with NAR representatives that it was looking at upping the per-mile rate, now set at 44.5 cents. When that hike would occur and how much it would be wasn’t disclosed. “NAR urged the IRS to make changes to account for higher gas prices, and indications are that changes will be made,” says one NAR policy analyst.

Looking ahead, it’s likely that practitioners will seek their own form of relief: more fuel-efficient cars—and that’s not just because of high gas prices. In 2004 Congress scaled back one of the tax deductions that helped make gas-guzzling SUVs a popular choice for businesspeople. In the change, Congress retained a $100,000 cap on the expenses small-business practitioners may deduct from their income for tax purposes but capped the proportion of that deduction that could go toward a large vehicle. Under the old law, owners could use the full $100,000 for a car used for business travel, provided the car weighed more than 6,000 pounds. The new rules limit the large-car deduction to $25,000.

Whatever the future holds for gas prices, the changes practitioners are making now could come to permanently define how they work—and that can be a good thing.

“I’ve found that gas prices have forced me to become a more selective salesperson, ultimately allowing me to be a better salesperson,” says Reynolds.

How to cope with the high price of fuel

When it comes to rising gas prices, are there ways to make a silk purse out of a sow’s ear? Here are a few things to try:

  • If you hold homebuying seminars as a way to drum up business, consider converting them into Webinars (online seminars). “Rather than driving and wasting gas to go to a seminar, prospects simply log onto my Web site,” says Phyllis Staines, CRS®, e-PRO®, broker-associate at RE/MAX Coastal Real Estate in Ponte Vedra Beach, Fla. “I’m online during a specific time taking questions live. The best part is, it’s free and anyone can attend from the comfort of their home.”
  • If you work open houses for other associates, charge them for the gas you use to get there, suggests Penny Lawrence, sales associate with Century 21 Distinctive Properties in Dixon, Calif. You’re volunteering your time; you don’t have to contribute your tank of gas, too.
  • Leverage online mapping tools. Use services such as Multimap.com and GeoJet (www.e-mapping.com) to figure out the most efficient way to get to listings before you leave your driveway. Not all mapping services have all markets covered, so you’ll need to investigate which ones have mapped your area.
  • Consider using a different set of wheels. “When I have to ride a bicycle or a bus—or even walk—I’m still a salesperson,” says Khanh Dinh, an associate with Century 21 Judge Fite, in Richardson, Texas. “High gas prices hurt business but not my enthusiasm.”

Do you have other gas-saving ideas you’d like to share? Send them to narpubs@REALTORS.org.

MORE ONLINE:

Gas prices: U.S. Energy Information Administration

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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